Fitch Affirm Metro's Ratings; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed Empresa de Transporte de Pasajeros Metro S.A.'s (Metro) ratings as follows:

International Ratings:

--Local currency Issuer Default Rating (IDR) at 'A';

--Foreign currency IDR at 'A';

--Senior unsecured bond, USD500 million, due in 2024 at 'A'.

National Ratings:

Issuances without explicit Guarantee of State of Chile:

--National long-term rating (Solvency) at'AA+(cl)';

--Line of Bonds # 515 (Series H and I) due in 2020 and 2029, respectively, at 'AA+(cl)';

--Line of Bonds # 619 (Series J) due in 2034 at 'AA+(cl)';

--Line of Bonds # 681(Series K and Series L) due in 2032 and 2033, respectively, at 'AA+(cl)'.

Issuances with explicit Guarantee of the State of Chile:

--Bond # 257 (Series A) due in 2026 at 'AAA(cl)';

--Bond # 275 (Series B) due in 2026 at 'AAA(cl)';

--Bond # 297 (Series C) due in 2027 at 'AAA(cl)';

--Bond # 339 (Series D) due in 2028 at 'AAA(cl)';

--Bond # 370 (Series E) due in 2029 at 'AAA(cl)';

--Bond # 371 (Series F) due in 2029 at 'AAA(cl)';

--Bond # 431 (Series G) due in 2030 at 'AAA(cl)'.

The Rating Outlook is Stable.

Metro's ratings incorporate support the company receives from the Chilean government through the financing of the majority of its capital expenditure plan. The ratings also reflect Metro's stable operating results, capital structure and adequate liquidity.

The Stable Outlook incorporates Fitch's expectation that the Chilean government will continue to support the implementation of the company's investment plan during the next year through the funding of approximately two-thirds of the required investments.

KEY RATING DRIVERS:

SUPPORT FROM CHILEAN GOVERNMENT FACTORED IN:

Fitch views the credit linkage between Metro and the Chilean Government as strong, as reflected in significant legal, financial and strategic ties between the two. Metro is a stock corporation that is indirectly wholly owned by the State of Chile. As of Dec. 31, 2014, CORFO, a 100% government-owned entity, held 62.75%, of Metro's outstanding shares and the Chilean government, through the Ministry of Finance, held the remaining 37.25%. Through these entities the Chilean government maintains and defines key aspects of Metro's capital structure, board of director's composition, investments plan, and funding strategy.

The Chilean government provides financing to Metro's projects through the public budget, which is prepared by the government and approved by the Chilean Congress on an annual basis. The financial ties are reflected in the capital contributions granted to Metro by the government to finance Metro's investment plan. During the 2010-2014 period, the Chilean government - through Metro's two shareholders - completed capital contributions of approximately USD1.5 billion. In addition, the State of Chile guaranteed 41% of the company's total debt (in December 2014).

STRATEGIC TRANSPORTATION PROVIDER WITHIN SANTIAGO AREA:

The company's strategic importance in terms of the public transportation system in the Santiago metropolitan area (Transantiago) is viewed as a positive credit factor as it ensures continued financial support from the Chilean government. Metro is the main public transportation system in Santiago and the backbone of Transantiago, participating in approximately 63% of the system's total trips, and facilitating the integration of other public transportation. Its goal is to provide the population with an adequate transport service, maintaining high levels of efficiency. With the upcoming construction of lines 3 and 6 in the next four years, Metro seeks to expand its operation, reaching a network of 136 stations, 26 communities, and an expected increase of approximately 800 million trips.

FINANCING STRATEGY FOCUSED ON UNSECURED DEBT:

Metro's ratings reflect debt with and without the explicit guarantee from the government, which have different degrees of subordination. Since 2008, the company's financial strategy has been to focus on issuing debt without explicit guarantee from the government. Unguaranteed debt represented 59% of Metro's consolidated debt as of Dec. 31, 2014. This percentage grew in 2014, after the issuance of an international bond for USD500 million, without explicit guarantee of the Chilean State. Fitch estimates that after Metro completes the USD1.3 billion debt financing of its expansion plan (lines 3 and 6), the participation of non-guaranteed debt would increase to 65%-70% of its consolidated debt.

MARGINS DRIVEN BY ENERGY COST TRENDS:

The company has maintained stable operational performance during the last five years. Metro's EBITDA margins remained at around 30% during 2010-2014. The company's revenue, EBITDA and EBITDA margin were USD489 million, USD138 million and 28.3%, respectively, as of Dec. 31, 2014. The reduction of EBITDA and EBITDA margin was mainly due to an increase in energy cost, explained by the new energy supply contract at spot price.

The ratings incorporate the expectation that the company should resolve its energy issues in the medium term through adjustments in its indexation formulas and/or its energy contracts. These efforts are oriented toward adjusting its cost structure and reduce the exposure to energy spot-price volatility.

The ratings consider the view that Metro's EBITDA margin would remain around 30% in the medium term. Historically, Metro's results have increased due to the expansion of its network. In December 2014, the company had 103.5km of lines, 108 stations, and a flow of 668 million annual passengers (667 million in 2013), more than double its size in relation to 2006.

NEW INVESTMENTS: EXTENSIONS OF LINE 2 AND LINE 3:

Metro announced the extensions on line 2 and line 3, which will call for 8.8km of additional network, seven new stations and an investment of USD1.2 billion. These projects are awaiting details as to the funding mechanism and start of construction. From Fitch's perspective, these extensions would be built after the construction of lines 3 and 6, and should be have financial support of the state for their construction.

BALANCE BETWEEN CAPEX PLAN AND FUNDING STRATEGY:

The company has a USD3.3 billion capital expenditure plan (capex) for the time period between 2012-2018. Approximately USD2.8 billion is to be used to increase its service offering and extend its network with lines 3 and 6. The balance is for improvements in existing operations. Funding for these projects will be handled in a similar way to those observed previously - with input from state resources for two-thirds of the total, in addition to company investment for the remaining third (USD1.3 billion, including USD500 million of international bonds issued in February 2014). Metro's financial leverage is high. The company's net leverage measured as the net debt-to-EBITDA ratio was 13.6x during 2014. For full year 2014,, the company's total debt was USD2.3 billion, mainly consisting of bank loans (20%) and public debt (80%). The ratings incorporate Fitch's view that Metro's net leverage would be around 16x during the 2015-2016 period.

ADEQUATE LIQUIDITY:

Metro's credit ratings reflect its adequate liquidity position. The company's had USD508 million of cash and marketable securities as of Dec. 31, 2014, which compares favorably with USD148 million of short-term debt. The company's access to credit through the banking sector and capital markets provides additional sources of liquidity. Metro's interest coverage ratio was 1.6x during 2013 and 2014.

In addition, the company has recently secured two syndicated bank loans for USD250 million led by Sumitomo Mitsui Banking with a 12-year term, and USD550 million (led by BNP) with a 14-year term (both credits not yet disbursed). Together with the USD500 million international bond, Metro will complete the external financing required for the project to build lines 3 and 6. The company's coverage ratio is expected to remain around 1.3x during 2015-2016.

KEY ASSUMPTIONS:

--Chilean Government covers 66% of the company's total capex plan during 2015-2018.

--Margin EBITDA around 30% in the medium term.

--Net leverage around 16x 2015-2016.

--Coverage ratio remains around 1.3x in 2015-2016.

RATING SENSITIVITIES:

Metro ratings could change if there are relevant changes in the financial and/or strategic support granted by the State of Chile, in its role as a controller of Metro. Downgrades to the Sovereign rating of Chile may also change Metro's rating.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', August 2013.

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983230

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Contacts

Fitch Ratings
Primary Analyst
Jose Vertiz
Director
+1 212-908-0641
Fitch Ratings, Inc.
33 Whitehall St
New York, NY 10004
or
Secondary Analyst
Francisco Mercadal
Associate Director
+562 2499 3340
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1 312-368-3349
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jose Vertiz
Director
+1 212-908-0641
Fitch Ratings, Inc.
33 Whitehall St
New York, NY 10004
or
Secondary Analyst
Francisco Mercadal
Associate Director
+562 2499 3340
or
Committee Chairperson
Joe Bormann, CFA
Managing Director
+1 312-368-3349
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com